Business Valuation - Our Cases

Corporations that have become insolvent or restructure under the Companies’ Creditors Arrangement Act frequently require an independent valuation, and the distressed circumstances of the business can pose additional challenges. A credible valuation has to forecast where the industry will be when the company emerges from court protection months or even years into the future, and the role that the rebuilt company or selected assets will play at that time.

Case Examples

Steel Company Shares

When a major publicly traded steel company was restructured under CCAA court protection from its creditors, we were engaged to independently value the common shares. To do that we had to employ forecasts of the future demand for steel and steel prices as well as the projected costs of production, which included modernizing the manufacturing facilities. Our valuation was confirmed by the stock’s actual trading price once the company emerged from court protection.

Auto Industry Bailout

A Canadian government agency turned to us to perform the valuation of a “bail-out” investment in Canada’s automotive sector. The analysis was needed both for financial reporting and to assist in the timing of a sale once market conditions improved. We used a valuation model that reflected a variety of key inputs as well as the work of auto industry experts in Canada and the United States.

Video Gaming

This case involved a video-game electronics and entertainment company under CCCA court protection from its creditors. We were retained to prepare a valuation of the en bloc equity and of the specific equity interest of one investor. Our report was used by a number of equity holders and creditors to negotiate the successful restructuring of equity interests in the company.

Business valuations are not required only in disputes. There are several other circumstances that call for an expert independent assessment of a company’s worth, ranging from financial reporting and regulatory opinions to corporate reorganizations and tax-related valuations.

Case Examples

OSC Mandated Valuations

The Ontario Securities Commission’s rules require related party transactions of a certain threshold be accompanied by a formal independent valuation. So when two publicly traded automotive companies entered into a significant management sharing contract, they called on us to analyze the value of the long-term contract. Our valuation report was submitted in public filings pursuant to the OSC rules.

Cutting-Edge Technology

We were retained to help in the acquisition of a company involved in RFID, or radio frequency identification technology, which uses radio-frequency electromagnetic fields to transfer data wirelessly and both identify and tag objects. Our role was to prepare a purchase price allocation, appraising the assets and liabilities being acquired to determine their fair market value. That required an in-depth analysis and understanding of the cutting-edge technology, its applications and its future potential.

Technology Tax Issues

We have prepared several independent valuations for tax filing purposes including of futures-trading software, logistical software and other intangibles for matters before the Tax Court of Canada. The valuations have been used in court proceedings or in settlement negotiations.

Matrimonial disputes generally have two very specific quantification issues. The first is determining the values of the assets and liabilities of the supporting spouses for the division of net family property, while the second is determining income for purposes of spousal and child support. This can be a complex exercise, particularly where there are interrelated private companies or transactions at less than fair market value or under reported assets. But this is not a large public-company breakup, so these disputes require a cost-effective and disciplined assessment and analysis.

Case Examples

Interrelated Companies

CHS has been retained on numerous cases by the non-owning spouse to value a wide range of inter-related private companies and income earned therefrom. We assess the fair market value of the companies, including a review of the intercompany charges for services provided by related parties. Our analysis often identifies that profits have been intentionally shifted between companies in an attempt to understate the value of the corporate interests and the income available to the owning spouse.

Establishing Exclusions

We were retained in this dispute to assess the value of a large group of companies specializing in manufacturing and real estate – and trace funds over a long period of time through various entities and family trusts in order to establish “exclusions” for family law purposes. We identified historical documents and records needed for production and helped retrieve them from many different parties. Our findings were presented as corporate ownership charts that detailed transactions, changes in ownership and traced the flow of funds. Our work successfully supported the exclusion claims.

Opposing Valuation

We were brought in to this case to review the valuation and income calculations prepared by another valuator and provide our own opinion. We worked with real estate and equipment appraisers, gemologists and other experts to establish value and assess the timing and quantum of future liabilities. Our investigation also identified withdrawals of funds from numerous related companies and the appropriation of corporate assets subsequent to the separation date. We found the conclusions reached by the other valuator were not well supported and our analysis helped form the basis of an eventual settlement.

Hidden Assets

Thenon-owning spouse turned to us in this separation case to prepare valuation and income calculations involving corporations with international operations. Our investigation uncovered undisclosed corporate entities located offshore. We questioned the transfer pricing arrangements that were minimizing taxes and profits in Canada and were, as a result, understating the value of the Canadian operations. Our analysis resulted in a settlement that reflected appropriate charges and income from all related companies.

Mergers and acquisitions can be done in a friendly environment or as hostile bids but, either way, they require expert business valuators who work in real time. An accurate valuation is one of the most important elements on the table because it has a major impact on the sale price. We have the necessary bench strength to rise to real time challenges. We appreciate the clock is ticking when mounting a bid or providing a response, and we have the experience and expertise to do the work quickly, get it right, and let the deal run its course.

Case Examples

Green Energy

CHS was retained by a publicly traded company that operates in the renewable energy field to put a value on a long-term management services agreement it wanted to buy out. The valuation required a solid grasp of the underlying business as well as a detailed understanding of the various formulas and operations to which management services fees applied. Our work helped the company determine a buy-out figure and reach an agreement quickly.

Mining Services

The purchaser of a mining company called on us to value a mining-services business in connection with a call option. The seller had also submitted a separate expert’s report as required under the call-option agreement. A third valuation was sought to help adjudicate the dispute. It was very close to our valuation conclusion, and was used as the basis of the transaction price.

Real Estate

When an investor decided to exercise a trigger in its shareholders’ agreement to acquire an equity stake in a company that owned several seniors residences and long-term care facilities, we were hired to perform the valuation. We worked closely with a real estate appraiser who valued the underlying properties, while we valued the related business and shares.

European Agency

A company that operates a fur-auction house in Canada retained us to provide business valuation advisory services in connection with its proposed acquisition of a European fur agency. We were closely involved in the acquisition discussions and our valuation model formed the basis of the price negotiations.

These disputes generally involve determining fair value of a company or a division after the triggering of a dissolution or buy-out clause in a shareholders or partnership agreement. Various federal and provincial business statutes also require a valuation be made as part of any proposed remedy to corporate oppression of minority shareholders.

Case Examples

Executive Terminated

When a senior executive in the financial services sector was terminated, we were asked to prepare an expert report and provide expert testimony at trial regarding the value of his equity interest in a company. The analysis required a quantification of foregone earnings and incentive compensation as well as a valuation of his equity interest in a privately-held investment management firm. The judge adopted the majority of our conclusions.

Technology Buyout

We were retained as court-appointed valuators to determine the fair value of a new-technology film business for purposes of a shareholder buyout. The valuation had to be done on a retrospective basis, which meant we had to consider projections and the status of technology as at a historical valuation date. We conducted detailed interviews with company management and industry participants, and also considered previous valuations prepared by other firms. Our analysis was accepted by the court.

Real Estate Wrangle

This shareholder dispute involved a real estate holding company with a significant commercial portfolio. We were retained initially as mediator and subsequently as joint valuator. Our analysis required us to work with real estate appraisers, other valuators, quantity surveyors and engineers. The value we determined formed the basis for a settlement between the shareholders.

Entertainment Proposal

When a shareholder dispute at international entertainment company led to a potential buy-out proposal, we were asked to value the company and review the valuations prepared by experts for the other side. We attended various settlement negotiations as part of our mandate and helped bridge the gap between the two positions.

Off-Shore Funds

This shareholder dispute in the transportation industry involved the value of a captive insurance company. We were called in to prepare an expert report and provide testimony at arbitration. The valuation involved Canadian and off-shore corporations and also extended to a review of alleged misappropriation of funds. The arbitration award adopted the majority our findings.